Bush says economic fundamentals are good

By Alister Bull

WASHINGTON (Reuters) - U.S. President George W. Bush said on Tuesday the country's economic fundamentals were strong despite "headwinds" from a weaker housing market, and he voiced confidence in a plan to ease the subprime mortgage crisis.

"The basics in the economy are good," Bush told a news conference, citing low inflation, low interest rates, a solid labor market and rising exports as grounds for optimism, although he acknowledged there were also challenges.

"I recognize there are serious issues -- the credit crunch and the home-building industry," he said.

The U.S. economy grew nearly 5 percent on an annual basis in the third quarter, but it now appears to be slowing sharply as the downturn in the housing market deepens and many analysts are warning of a growing risk of recession.

With home prices falling and the cost of repaying home loans rising, hundreds of thousands of home-owners are finding it harder to refinance into cheaper mortgages and hang onto their homes.

"I am concerned about people who may not be able to stay in their homes," Bush said. "That is why we are taking the action we're taking."

The economy is a potent political theme and Democratic Party lawmakers on Tuesday urged the Bush administration to help as many cash-strapped homeowners as possible.

Interest rates on two million subprime mortgages, aimed at borrowers with spotty credit, are due to reset sharply higher in coming months and officials fear as many as 500,000 borrowers could lose their homes.